OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

Reducing Macroeconomic Imbalances in Turkey

Turkey recovered swiftly from the global financial crisis but sizeable macroeconomic imbalances
arose in the process. High consumer price inflation and a wide current account deficit are sources of
vulnerability. Even though below-potential growth helps rebalancing and disinflation, these imbalances
endure. The financial sector still looks resilient thanks to buffers built up mainly prior to the financial
crisis. However, private sector balance sheet risks have gained prominence as leverage increased.
Macroeconomic and structural policy levers need to steer a passage between robust but externally
unsustainable growth and externally viable but low growth. Monetary policy needs to bring inflation and
inflation expectations closer to target. Macroprudential policies could more systematically lean against
capital inflows and credit cycles to reduce private sector balance sheet vulnerabilities. The fiscal stance is
broadly appropriate, but compliance with a multi-year general government spending ceiling would help
avoid pro-cyclical loosening in case of revenue surprises and help boost domestic saving. Overall, policies
should help reduce the risk of disruptions in capital flows as monetary policy stimulus is being withdrawn
in the United States.


Keywords: current account, saving, competitiveness, monetary policy, Turkey, fiscal policy, financial market policy

E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy;
O52: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Economywide Country Studies: Europe;
E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy;
E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy;
G18: Financial Economics / General Financial Markets / General Financial Markets: Government Policy and Regulation;
E2: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy;
F32: International Economics / International Finance / Current Account Adjustment; Short-term Capital Movements;
F41: International Economics / Macroeconomic Aspects of International Trade and Finance / Open Economy Macroeconomics;
E3: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles